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The bank took big risks to grow quickly by gathering and investing money from a
wide range of tech start-ups; its shareholders cheered, and its auditors and
regulators did nothing to interfere. Indeed, regulators treated Silicon Valley
Bank’s core strategy of investing in government bonds as essentially risk free,
blind to the dangers posed by a rapid rise in interest rates. Regulators also
should have limited the bank’s dangerous reliance on large, uninsured deposits.
Policymakers — in Congress, the Treasury Department and the Federal Reserve — have
a duty to explain to the American public how things were allowed to spin so far out
of control. Banks are different from most private-sector companies. They are
insulated from market discipline by various forms of federal protection because,
like the power companies that keep the lights on, they provide a public service
that is essential to a modern economy. Regulators have a responsibility to ensure
that banks do not abuse those privileges.
In the case of Silicon Valley Bank, regulators failed to do that job. The Federal
Reserve’s role as the lead agency in responding to this crisis has obscured its
failures as the agency that was responsible for supervising the bank in the first
place. “They should have stopped them months ago,” said Anat Admati, a finance
professor at Stanford University. “That’s my problem with the Fed: If they were
honest, they would admit their own mistakes.”
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Congress should now correct its mistake by restoring the $50 billion threshold.